Corby Spirit and Wine Limited (CSWA) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to today's virtual non-deal roadshow. My name is Gillian Brody, Virtual Event Moderator here at Renmark Financial Communications. On behalf of our team, we want to thank everyone in Houston and surrounding areas for joining us today for the presentation of Corby Spirit and Wine Limited. Corby Spirit and Wine is currently trading on the Toronto Stock Exchange, under ticker symbol CSW.A as well as CSW.B. Presenting today is Chief Financial Officer, Edward Mayle. The presentation will last approximately 25 minutes, and will then be followed by a question-and-answer portion. Please feel free to submit questions using the chat function in the top-right corner of your screen. With that, I will hand it over to you, Edward.

Thank you, Gillian, and good afternoon, everyone. Thanks for joining today's call to hear about Corby Spirit and Wine. I'm very pleased to be talking to you for -- I think it's the second time in Houston. And for those of you who are new to Corby, you'll see that while Canada is our prime focus, in fact, the U.S. is also a very important market for us. Usually, I'd be joined on the call by Nicolas Krantz, our President and CEO, but he sent his apologies. He's unable to join us today. For myself, I've been Corby's CFO for about 3.5 years, and I've been in the Pernod Ricard Group for a little bit over 22 years in various positions, as in different market companies around the Group. And in fact, this is going to be my last presentation for Corby, as I will shortly be moving to another position. And our next roadshow will be hosted by my successor, Juan Alonso. Before I start, I'd like to thank the team at Renmark for supporting us today. And also just a quick word about forward-looking information. My comments will be historically focused, but any forward-looking statements I make will involve risk, and we'll provide updates to any forward-looking statements as required in our disclosure documents. So a quick introduction into Corby. Corby, for those of you who don't know, is the #1 TSX-listed spirits and wine company in Canada. The Canadian spirits market is a major market globally, #10 worldwide when considering international spirits. And in Canada, Corby is the #2 player. We build brands, and we have a portfolio of iconic Canadian and international brands. Some of those are owned by Corby and others that we represent through our relationship with Pernod Ricard and with The Wine Group. Pernod Ricard itself is global #2 in the spirits and wine industry. We're a value business, generating steady earnings and cash flow. And our corporate mission captures who we are with our ambition to win, leveraging our portfolio, and with a consumer-centric focus and mindset. And we built connections, celebrating human spirit with our brands playing a role to create joyful convivial moments between people, which we believe is something the world sorely needs. So Corby, as a company, very rich history. The entrepreneurs such as J.P. Wiser's, Hiram Walker, Henry Corby, are major figures who established the Canadian spirits industry back in the 19th century. And Henry Corby, for example, began distilling whiskey in 1859, and the industry grew alongside the growth of Canada as a nation. Corby itself, listed on the TSX in 1969, and the majority of shares were acquired by Group Pernod Ricard in 2005 as part of its acquisition of Allied Domecq. And Pernod Ricard has itself enjoyed a remarkable growth story and is listed on the Paris Stock Exchange and is a global #2 in the spirits and wine industry. Now, we operate primarily in the Canadian beverage alcohol market, which is a multibillion-dollar market, with spirits and wines together representing the major part of that market with the retail value of over CAD 15 billion. Ready-to-drink is a small but very fast-growing category, while beer is the largest category, but it's facing the lowest growth out of the 4 categories. The Canadian spirits and wine market is a very heavily regulated market, controlled by the provincial government monopolies. And they are in charge of importing, distributing and retailing. The situation is evolving, so it's not quite the same in all the provinces, notably British Columbia and Alberta, which have progressively opened their market to private retailers. The 2 key channels of spirits and wine distribution are the off-premise, so typically the liquor stores, and the on-premise, to the restaurants, cafe bars, clubs and so on. We can also increasingly recognize e-commerce as a channel to consumers. And although heavily regulated, it is becoming more important. In Canada, the off-premise usually represents around about 90% of the total market. And the on-premise was, of course, heavily impacted during COVID lockdowns. So this year, the on-premise has been recovering strongly, but it's not quite back to pre-pandemic levels, so [ showing that ] on the graph at around 7% of the total market. The Canadian spirits and wine markets were unusually dynamic in 2020, while 2021 has seen a little bit of a move back towards historical levels. So historically, the market is what we would [indiscernible] mature market, usually with low single-digit growth, but there are significant growth pockets within categories, and these are often driven by innovations. And the market [indiscernible] value realization with value ahead of volume as a result of positive pricing and mix effects and a feature that the market is becoming over time more premium as consumers are willing to pay a little more for more premium products, so as we call premiumization. And the third feature is the COVID impact that particularly marked during 2020 and less so in 2021, as we revert now more toward normative growth levels. Now, looking at the various categories within the spirits market, you can see vodka is the largest category overall, followed by Canadian whiskey, rum and liqueurs. Category growth is varied, and we see now with the reopening of the on-premise that there are changing trends in category dynamics. And so some of the categories which over the last year or 2 haven't been growing, bouncing back quite strongly. So for example, we can see that with tequila. In a number of categories, Corby has significant market share, in particular, in the whiskey categories, where Corby is #1 overall. So as a result, Corby has strong market position, little over 16% share of the spirits market, and with 3 of the top 10 brands in Canada by value, and with a position of #2 overall in the Canadian spirits market, and with a leading position in Canadian Irish and single-malt whiskey categories. Our position in the wine market is much more limited. Wine is more fragmented market than spirits. We're focused only around a small number of key countries of origin, with the wines that we represent from Pernod Ricard, which are then coming from Australia, New Zealand and Spain, and then from The Wine Group for wines with Californian Origin. So turning to our business model. So we have a tightly-focused business strategy, around 4 pillars that guide our priorities and our actions. We start with the consumer, and we have excellence, then in execution, supply chain route-to-market last 3 feet activation, data and digital transformation, and lastly, [ well in truth ] this pillar in fact cut across everything that we do, our responsibility pillar, and we'll take a quick run-through now on each of these. So connecting consumers to our brands. At Corby, we put consumers at the heart of everything that we do through precision targeting. Our ambition is to offer the right brand for the right consumer at the right moment of consumption. Our competitive advantage is our wide and diverse portfolio of brands, which cover pretty much most of the major product categories, and more importantly, the key consumer occasions. So each brand has a role to win at a particular consumer occasion. This enables us to make choices in terms of investment, marketing, commercial activity to drive our overall portfolio. Consumer insight underpins our innovations, which are essential to capture growth in the ever-changing environment with innovations that bring the highest potential. Recent innovations that we brought to market include ready-to-pour cocktails from the J.P. Wiser's family; 2 innovations, for example, from Ungava, an Ungava Ginger in bottle and Ungava Gin & Tonic ready-to-drink. On the represented portfolio from Pernod Ricard, a number of innovations were recently launched, such as Absolut Watermelon and Jameson Cold Brew; and we did a fairly major product restage on Kahlua, the coffee liqueur, for example. So as a result, we've seen our share of innovation increasing. Our process for innovation is embedded in consumer insights and strong collaboration and planning with our customers and the liquor boards and with our product development, for example, Dr. Don Livermore at the Hiram Walker Distillery or with the Pernod Ricard brand companies. So collaboration, building on consumer insight is the key underpinning our innovation strategy. Looking at the next pillar, executing from media to shelf. This is really all about excellence in our route-to-market, leveraging our national commercial capabilities. This means coordinating execution throughout the consumer journey from when a consumer first sees a mention of our brands to the point of purchase where brands are activated with impactful displays and shelf presence. We also leverage revenue growth management to drive value ahead of volume. And we're preparing for a rebound in the on-premise channel, partnering with customers to offer unique takeout and delivery solutions. We're creating immersive and engaging consumer experiences, and we're maintaining relationships with our national key accounts, where we hold a #1 position in the market. We're also exploring new channel opportunities. So e-commerce offers an opportunity for further growth, enabling us to engage directly with consumers and also work in deeper collaboration with our key customers. E-commerce is the fastest-growing channel in beverage alcohol industry, and it is a place we think where we can gain share. So we've established a dedicated team to capitalize on this trend, and want to become the digital partner of choice for our key customers to develop their online consumer interactions and strategies. Just a word to note, that in Canada, the e-commerce channel is still very heavily regulated. And although there is some direct-to-consumer through our distilleries, most of the e-commerce activity is still via those provincial liquor boards. And then, I think one other feature just to mention, which will be maybe top of mind for many of you, recently supply chain has become an increasingly important focus for our efforts. Obviously, the global shipping crisis has had an impact, and it's required our teams and our partners to respond with agility, and we have faced the localized and intermittent issues. Channel opportunities for Corby also include export, and we saw some particularly exciting results and double-digit growth in [indiscernible]. In the U.K., I would say, we have 2 major [indiscernible]. In the U.K., we brought new packaging and listings for Lamb's Spiced Rum, which helped to drive the brand to #3 position in retail in its category. And in the U.S., our focus is on J.P. Wiser's, which enjoyed a very strong performance as we've accelerated growth and distribution in key states. We also introduced new packaging, as well as ready-to-pour old-fashioned the Manhattan cocktails, and activated media targeted to key cities. The U.S. is a primary strategic market for us. The Canadian whiskey category is, in fact, the largest imported whiskey category in the U.S. and our footprint is very small. We believe that in the long term, the U.S. market offers an unparalleled opportunity for Corby. Third pillar, what we call, digitizing our enterprise. This is all about building competitive advantage through the capture and use of data to improve our value creation with improved decision-making. This covers both front-office and back-office initiatives. We've got 4 key front-office initiatives, which we call our key digital programs. Just to highlight what we're expecting from these: first is to segment and activate our customer base to improve our sales force effectiveness; secondly, driving value optimization in our promotions and pricing management through revenue growth management; third is targeting more effectively our marketing activity, so that we are activating to the right consumer touch point, marketing mix modeling; and finally, it's to help deepen our relationships with key customers, as together, we're building those e-commerce capabilities that I spoke about earlier. And finally, the fourth strategic pillar, which is our ambition to build the future responsibly. And this pillar is about our people and our commitment to environmental and social initiatives. Through its relationship with Pernod Ricard, Corby is committed to supporting an ambitious set of objectives along with a mission to create a more convivial world and a world without excess. We've got 4 pillars that we work on, being what we call nurturing terroir, valuing people, circular making and responsible hosting. And through these pillars and in partnership with Pernod Ricard, and our suppliers, we're working to develop our business sustainably from grain to glass. Building the future responsibly is also about leveraging our culture of conviviality and making our workplace safe, inclusive and diverse. So it's about investing in the development of our people and creating an environment that nurtures and celebrates diversity and inclusion. And obviously, it's only by unleashing the potential of our people that we'll be able to succeed sustainably in the long run. In fiscal '21, we held our first diversity and inclusivity week. We increased our gender balance. So we're really 50-50 men and women in the Company. And at a senior level, it included the appointment of 2 women members to our Board of Directors. We also issued refined internal company policies to help create an environment more representative of our consumer base. So just to wrap up on this section, to summarize what we believe is a successful business model, creating value for all our stakeholders, including consumers, customers, shareholders. We've got a portfolio of brands covering all major categories and consumer occasions. We've got a dedicated sales force across the whole country of Canada. Our strategy of premiumization supported by dynamic revenue growth management and innovation pipeline, opportunity to accelerate growth in some key export markets, notably the U.S., and digital transformation, helping us to build a competitive advantage. We also have the capability to do some bolt-on acquisitions to strengthen further our business. So we've got a clear strategy and roadmap. And together, these deliver consistent financials. We have an effective business model and delivered through an effective team. So just a word then to the executive team at Corby. As I mentioned, Nicolas Krantz, our CEO, over 20 years experience in Pernod Ricard in various senior financial and chief executive positions around the group. We've got strong international expertise: Caroline Begley, our VP Marketing, who's worked in China, in Europe, in the U.S.; Mark Thorne, deep expertise in the Canadian market, but he's also worked abroad in the U.K. and in Eastern Europe. So really, the executive team, deep experience in the industry and in different geographies worldwide. So I'll jump now then to talk a little bit about the financials. I'm just going to kick off, for those of you not familiar with Corby, just with a few words around our capital structure, then I'll do a run-through on some features of our financials, and then we'll just wrap up with the performance for the start of this fiscal year, before we turn over to the Q&A. So 3 elements of our capital structure to highlight. First is Pernod Ricard's majority stake in Corby. So I mentioned earlier, 2005, Pernod Ricard, along with Beam Suntory, acquired Allied Domecq, and then split the assets between them. Remember, through this transaction that Pernod Ricard acquired Hiram Walker, the historical owner of the majority stake in Corby. Now at that time, Pernod Ricard had a small distribution business in Canada, but it was through the acquisition of Corby, Pernod Ricard was able to take a much stronger market position in Canada and Corby was able to access the premium international portfolio of Pernod Ricard. The relationship between the 2 companies governed through a series of agreements. The first of these is the representation agreement through which Corby is designated as a distributor of Pernod Ricard's portfolio in Canada. The original agreement ended at the end of last fiscal year, and we've entered into now, at the start of this year, to a new 5-year 3-month agreement with an upfront fee paid to Pernod Ricard in September 2021 of CAD 54.4 million. And then, we also have a series of service agreements, and these cover the production services. So a lot of the actual whiskies produced by Hiram Walker. So we contract with Hiram Walker for the production of a large part of our liquid stocks, but also other services. So we have an accounting shared service center. We have neutralized legal team, HR, and sort of a range of kind of back-office support, which really enables Corby to tap into the world-class expertise of Pernod Ricard. And then thirdly, looking at the share structure, Corby has 2 classes of shares, A shares and B shares. The A shares are voting rights, and Pernod Ricard owns 51.6% of those, and therefore, it's majority rights. And then the B shares with no voting rights. But both classes of shares are treated equally for dividend entitlement. And aside from Pernod Ricard, there's no other major shareholder above 10%. Those remaining shares are owned by a mix of institutional investors, retail investors and employees. Now, turning to the financials. So just a quick word first to describe the setup of our financials, it's very straightforward. Our performance is understood first through volume sales, industry-standard 9-meter cases. We report in our MD&A, our depletion volumes, which is the sell-out volumes in Canada of the Corby-owned brands, so excluding the representative brands, gives a clear view of our brand performance in the market. Secondly, is our shipment. So these are the sales of product [indiscernible] customers directly drives the P&L revenue. Variations between shipment and depletion volumes is important to follow. Just be mindful, depletion volumes as reported in our MD&A covers the performance within Canada, while shipment volumes in our MD&A includes also our export volumes. Revenues generated from 3 sources. First of those, and the major bulk of our revenue, comes from our case goods for the Corby-owned products, so CAD 125.3 million out of CAD 159.8 million in fiscal '21, and we earned a gross margin of 53% on those revenues. Second revenue source then is our commission income. So 2 portfolios that we represent, the major one being the Pernod Ricard portfolio and the second one being the wine portfolio from The Wine Group. Our commission income is reported net of the amortization of the upfront fee, and commission income in 2021 was CAD 28 million, net of CAD 7.2 million amortization. [indiscernible] there's an increase in amortization with the start of the new representation agreement. This will depress our earnings year-on-year, so this year versus last year, but then it will remain flat over the future life of the agreement. And then thirdly, we have other revenue, which is generated from other services, and these are [indiscernible] sales of bulk whiskeys if we're in a surplus on our strategic maturing inventories and other incidental services. Marketing and sales expenses are then deducted to bring us to our earnings. Marketing expenses on represented brands, a recharge to the brand owners, while we retain the investments related to the Corby-owned brands, of course. Sales and admin expenses servicing all parts of the portfolio are retained in Corby. Full year net earnings in fiscal '21 were CAD 30.6 million, so that's CAD 1.07 a share. On the balance sheet, we reported shareholders' equity of CAD 188 million. Two features to highlight. First, cash generation is usually strong, usually running ahead of our net earnings. Secondly, our capital investment. We're relatively asset-light as our production is largely outsourced to Hiram Walker. Our annual capital investments relate primarily to barrel purchases to store the new whiskey make, to IT investments, or to investments in our wholly-owned production sites. We have 2 facilities, one in Quebec and one in Niagara. Capital additions in 2021 stood at CAD 2.8 million. Our financial performance in fiscal '21 delivered solid revenue growth and strong net earnings. Shipment volume grew 1% to 2.2 million cases with a decline of 2% on the Corby-owned domestic brand and a growth of 35% in volume on our export sales. Revenue growth grew plus 4%, growth across all our revenue streams, so domestic case goods, export, commission and other services. The improved product and market mix complemented revenue growth management and promotions optimization initiatives, and together with our ongoing cost optimization efforts through an improved gross margin up to 53%. Our cash generated from operating activities, CAD 40.9 million, with favorable growth in adjusted net earnings, offset by working capital effects, largely caused by changing flows arising from COVID-driven phasing on sales and expenses, so we had a very favorable working capital effect in the prior year. Earnings per share delivered 15% growth, as marketing sales and admin expenses reported a slight decrease last year, 1%, primarily a result of COVID impacting reduction in business travel and a reduction in some of our marketing activities with the closure of the on-premise. And Corby maintained a generous dividend policy. Dividends declared at 90% of prior year earnings. And the final quarter dividend payment was CAD 0.21 per share. And the most recent dividend that we've declared now in the last 2 quarters are CAD 0.24 per share. Looking at global shipment brand performance last fiscal year. Our portfolio had mixed result. Corby's flagship J.P. Wiser's grew 4% in shipment volumes, 7% in value, outperforming the Canadian whiskey category. Our Ungava Spirits brand grew 6% [indiscernible] value. Cabot Trail cream liqueur, in particular, had very strong performance, thanks to the change in consumer trends during COVID. [ McGuinness ] liqueurs, and part of that kind of changing consumer trend with home cocktail making, are becoming very, very popular, grew 6% in volume, 8% in value. Lamb's Rum grew 8% in volume, 14% in value, and enjoying very strong performance in the U.K. Within Canada, Lamb's Rum, which has a large footprint in the Atlantic provinces and in Alberta, but is generally facing a decline in the domestic market. And then Polar Ice Vodka declined 5% in volume and 4% in value, and particularly impacted by the closure of the on-premise and very fierce off-premise competition in the vodka category. Our commission income grew 7% before amortization and 3% after amortization. And on our cash flows, Corby enjoys strong cash flows and strong cash conversion. Our cash deposits increased to CAD 94 million [indiscernible] in last fiscal. And our dividends were paid out at nearly CAD 24 million. A major use of that strong cash generation is to fund Corby's generous dividend policy. Many investors [indiscernible] Corby to its stable and resilient cash flows and its high dividend payout. [ And our ] aim is to pay the greater of 90% of prior year earnings and CAD 0.60 per share paid through 4 quarterly payments, and each actual payment is, of course, subject to approval from the Board of Directors. So turning to the start of this fiscal. The underlying market has remained quite positive, with growth in volume and value of the spirits market, in particular, with that rebounding in the on-premise. We see a premiumization taking place in the off-premise and continued dynamism in our key international markets of the U.S. and the U.K. And of course, the Omicron COVID variant disrupted hospitality over the holiday period, so that reopening that we had seen in the early part of the start of this fiscal year hit a little bit of a roadblock at the end of November and into December. Within that positive underlying, let's say, consumer market environment, our financial performance this half is negatively impacted with some very specific effects. Firstly is that last year's H1 provides a very high comparison base. Secondly, we faced some supply chain tensions in our locally produced product and some important -- imported commissioned goods, as well as on our exports to the U.S. market. And thirdly, marketing sales and administration expenses were low last year in H1, as costs were tightly controlled in response to pandemic closures and travel restrictions. And this year, we're pleased to be investing in our business with media spend, in particular, increased on key brands, supporting the on-premise rebound and some resumption in business travel as our teams are able to reconnect with our customers again. This fiscal year also, of course, marks the start of the new representation agreement with Pernod Ricard, and an upfront fee of CAD 54.4 million paid in September 2021, amortized straight line, so that leads to a significant increase in amortization. So adjusted revenue was flat and adjusted for amortization on the representation agreement. Adjusted revenue was flat in the first half to CAD 98.9 million. Marketing, sales and admin expenses, as I say, increasing by 7% to CAD 28.9 million. And then adjusted net earnings for the first half at CAD 19.7 million, which equates to reported earnings per share of CAD 0.56 per share. So just to wrap up then before we jump over to Q&A, so 3 takeaways. One is, in Corby, we've got strong financials, providing consistency and visibility [ with vast ] straightforward business model, and with a successful track record, and we've got a very talented and passionate team of people with a strong and diverse management team. So with that, let me thank you all very much for your attention, and I think we can cross over now to Q&A.

Thank you so much for that wonderful presentation, Edward. We will now move on to the question-and-answer portion. Without further ado, your first question is, what are the key milestones that Corby is looking to achieve this calendar year?

Well, I think 2, which immediately jump to mind, I would say. The first is navigating through the reopening of the on-premise. So we've got, I'd say, 2 key objectives in that space. Number one is recapturing our footprint within the on-premise as we go through the process of opening, closing again, opening again. And secondly, is holding on to the gains that we made in the off-trade. So during the COVID period, we made some very successful gains in off-trade in particular, in some categories that have been -- maybe a little bit tired in the recent past, I'm thinking of the liqueurs in particular, throughout McGuinness liqueurs, but also the gains that we made with Cabot Trail, the maple cream liqueur. So holding on to those gains that we made in the off-premise and recovering in the on-premise. And then against that, I would say, managing with the volatility of those global supply chain challenges. So obviously, it's not an industry-specific issue. We face the difficulties that all CPG companies are facing. And it's been really, I think, all credit to our supply chain team and our partners at our brand companies and our logistics partners in trying to make sure that we can get product on to shelf for our consumers. So for me, I think those are the immediate, let's say, commercial imperatives. Beyond that, I think the data digital transformation that we're embarking on, it's a huge effort across pretty much the whole company to develop new ways of working, both technically, how do we capture data, how do we leverage the data, and then sort of changing ways of working that we need to establish, new protocols, new ways of working within the company. So I think, that's quite an important priority for us this year as well. And then finally, I would just say that sustainability aspect. And I think all of us, we had the COP26 earlier this year. It's accelerating up the agenda for many, many businesses, and it's a very important priority for Corby as well.

Your next question is, as you are the second largest player in the Canadian spirits market, who is #1?

Well, #1 is Diageo.

Your next question is, I hear that the Canadian restrictions are lifting. Does that mean that your sales team is back in full force?

Great question. I would -- I want to actually just clarify, our sales team, in a way, has always been in full force. While we do have sales teams, which are going to be focused on particular channels, whether it's national key accounts, on-premise, off-premise, during the market disruption, when, for example, the on-premise is closed, our on-premise teams aren't sitting at home wondering what to do with their time. So we're able to just repurpose those and support the parts of the business, which are indeed open. But yes, obviously, as -- and thank goodness, 2 years in, as we get back to normal, I think we're all just super excited to be able to get back out and engage with our customers face-to-face as we did in the past.

Next question is, can we expect to perhaps see a U.S. distillery [indiscernible] playing in this market?

It's a very good question. We obviously don't disclose any concrete plans when it comes to M&A. But whether that would extend to a U.S. distillery, really I wouldn't be in a position to answer on that. I would look though at the recent -- or the most recent acquisitions that we have done have been Canadian-based. So it might be that we'd be more focused on the Canadian market than taking an acquisition directly into the U.S. market. As I say, I can't comment specifically on that.

Understood. Next up, what is your best-selling brand in the U.S.?

Well, J.P. Wiser's, which is our flagship brand, both in Canada but also in the U.S. So that's our primary focus. We have a footprint of around about 50,000 cases. It's about 10% of the footprint of the brand in Canada. And there's no reason for us not to really reverse that. The U.S. market is about 10x the size of the Canadian market. So J.P. Wiser's is our flagship and primary focus in the U.S. We also have our premium portfolio. So we can see on the graphic on the screen, 2 of the whiskey product, Lot 40, which is 100% rye whiskey, and Pike Creek and also Ungava Gin. So these are more kind of niche and premium products, and they're also present in the U.S. market. But complementary, I would say, to our prime focus, which is to build the J.P. Wiser's franchise in the U.S. And we're doing that in, I'd say, on the targeted approach. So our strategy, our policy is not to hugely overinvest. So our growth needs to be self-funded year-on-year and not to kind of go all in. So we take a very targeted approach state by state and within state, city by city, because obviously, we've got limited resources in the U.S., it's such a huge, huge market. So we're very focused and -- step-by-step approach. J.P. Wiser's is the priority in the U.S.

Understood. A viewer would like to know, given the Company's exceptionally strong free cash flow, what is the reason the company is still public? Why would Pernod not wish to own the entire company?

Well, that will be a question for our shareholder, Pernod Ricard. So I can't really answer on their behalf.

Your next question, can you comment on the per capita decline in Canadian alcohol consumption over the last 4 years?

Yes. I think per capita alcohol consumption generally is something that really is a shift from quantity to quality, if you like. Overall, alcohol consumption decline is a trend that is seen in many markets. It's hand-in-hand with a more balanced approach to consumption on many items that we see. But what is important for us is not the quantity of consumption, but the quality, which feeds absolutely into our strategy of premiumization. So people consume less, but they want to consume better. And that's absolutely works in tandem with a strategy of premiumization. And really something that we saw as well during COVID, at the start of the COVID lockdown, when people were concerned about liquor stores closing, it was just about grab whatever you could off the shelf. As we went through, you could see a real shift in consumption patterns, with more premium categories picking up, single-malt scotch whisky, cognac, premium variants in gin, in Canadian whiskey. So drinking better is a feature that we see happening.

Your next question is, as you look to enter the U.S. market, would you consider buying a local brand to get a foot in?

Yes. We need to consider what the benefit of buying a local brand would bring. Obviously, in any M&A transaction, it's a question of managing overall value creation. There's a certain alignment of the stars that is needed. So we'd need to find a product that is in a dynamic category, a product that is growing ahead of the category. That is a premium product. So it's going to enrich the overall margin. We'd need a seller who's keen to sell and we'd need to have a price that is going to lead to good value creation for Corby. So it's really, it's a question of an alignment of the stars. We are maintaining an active monitoring. So we have under Stephane Cote, our New Brand Ventures VP, part and parcel of his responsibility, and along, of course, with Nicolas Krantz, CEO, and myself, CFO, we are constantly looking for potential targets, but we don't let that distract us from the day-to-day value creation effort, which is working with the wonderful portfolio that we currently have. And M&A isn't a panacea. It's not the silver bullet that is going to immediately need to value creation. So yes, we have got a very strong balance sheet, which particularly in these turbulent times is, I think, a reassuring feature for Corby. But we have the means, the capacity to perform M&A, but it's a question of finding the right opportunity.

Your next question is, if Pernod Ricard acquired by another company, will the distribution contract for Corby change?

That's rather unlikely situation, I would say. Pernod Ricard has a market cap of some EUR 50 billion or so. But yes, to the top of my mind, I don't know what the change of control clauses are within the representation agreement, but there is usually a change of control clause. But I have to admit I don't know the answer to that to the top of my head. But whoever has asked that question, if it's something that's important to follow up on, get in touch with Renmark and we can come back to you on that.

Absolutely. Next up, are you currently experiencing any material shortages due to the supply chain constraints?

It's a good question. Indeed, we have faced some, I'd say, intermittent localized supply issues. It doesn't tend to be across the board, but we have faced some issues in particular with access to some glass bottles for some of our products, also for some of the dry goods, so labels on some products, core closures on some products. So yes, we have faced some intermittent supply issues on dry goods. There are also supply issues on finished goods deliveries. So both on the raw material side, but also on the finished goods side on some of those represented products, particularly those with longer shipping delivery time. So wine products from New Zealand and Australia, for example, were particularly impacted. And it's quite interesting, when you look at where those issues are arising, because it's really across the whole chain of the supply chain; container availability, container shipping availability, port loading and unloading capacity, trucks, truck drivers, then we've had labor disputes, we faced some natural disasters, in particular, in the west of the country, there was severe flooding earlier in the year. So along the chain, there have been various pressures at different places along the chain. We worked very closely with our suppliers either to source alternative products. We can look at redesigning, very sort of agile redesign of some products to be able to leverage materials that are not in such short supply compared to those that are in short supply. Re-routing where there are ports that are facing particular congestion. So for example, the West Coast of the U.S. is particularly tight on port congestion, so, is it possible to redirect shipping on to the East Coast. So various strategies being pursued, as I say, by a great work by the logistics teams, both within Corby and with the logistics companies as well.

Speaking of the West Coast, a viewer would like to know, are you experiencing growth in coming years on the West Coast of Canada?

Well, I certainly hope so. So we have a national strategy. Our primary markets are obviously where the population centers are. so Ontario, Quebec and then British Columbia and Alberta on the West. So those are indeed important markets for us. We have dedicated sales forces embedded within those markets. Our portfolio is fully represented there. And indeed, we are working forward and expecting growth in those provinces.

Next up, are there any other major shareholders?

No, as I mentioned. So no other major shareholders beyond Pernod Ricard. So any other shareholders, they're below the 10% threshold requiring the detailed disclosure and declaration. So it's a mix with small holdings by institutions, employees and so on, but no other major shareholder.

We are coming up on your final 2 questions for today, both budget related. First up, what is your quarterly budget allocated to marketing as well for R&D for new products?

So when it comes to marketing, we have, I'd say, quite a sophisticated process in terms of mapping our portfolio against our consumers or consumer occasions, I would say. And understanding from within the portfolio, which products at which consumer occasions are going to drive the biggest opportunity and the biggest uplift. Obviously, we've got limited resources when it comes to our marketing investments. So our marketing teams in collaboration with our commercial team, with the finance team, we work through a cycle. So we currently have an annual budget, but a rolling forecast process through which we are laying out our marketing plans, which are generated in parallel with our commercial plans. So we have a commercial execution plan and a consumer marketing plan, which are built alongside one another, and obviously, then in collaboration as well with our customers. So we try to get this sort of 360 approach where we're aligning the different parts of the company with the resources that we've got to maximize the uplift and the impact of our marketing efforts. During the year, there were particular moments where spend is going to be up weighted. So the holiday season, October, November, December tends to be the busiest part of the year. But we've got key moments throughout the year relative for more or specific for particular parts of the portfolio. So for example, we're coming into March, Saint Patrick's Day, a very busy period for Jameson. We'll come into Mother's Day, Father's Day, the different celebratory moments during the year at which we can invest behind and activate key brands. Over the summer period, it's going to shift more towards some of the product like rum and wine and so on. When it comes to actually defining the amount of budget quarter-by-quarter, obviously, I'm not at liberty to disclose that. But really, just to explain that we have a very active management of those marketing investments by brand, by consumer occasion throughout the year.

Wonderful. Thank you for that thorough answer. With that being said, you actually answered the following question as well. So that does conclude our Q&A session for today. Thank you to everyone who participated by submitting questions. If you didn't get a chance to, you can still do so by contacting our account manager here at Renmark Financial Communications. This concludes our presentation for today. But before we go, I will turn it back to you, Edward, for any final remarks.

Well, thanks very much, everybody, for your time. I really appreciate it. Just to recap, as it says on the slide, it's solid financials, a generous dividend policy, straightforward business model, and a very experienced senior management team and very passionate employees. So I think that answers the question, "Why invest in Corby?" Thank you all very much.

Thank you so much, Edward. Once again, this was Corby Spirit and Wine Limited, currently trading on the Toronto Stock Exchange under ticker symbol CSW.A as well as CSW.B. On behalf of Renmark Financial Communications, I want to thank everyone in Houston and surrounding areas for joining us today. Stay tuned for future presentations in your area. Until then, stay safe, be well, and we'll see you next time.